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  • Writer's pictureArk Wingrove

Stakeholder Capitalism and how it could be great for Infrastructure Asset Management

Updated: Apr 30, 2020

Given recent events in the form of COVID-19 the discussion regarding stakeholder capitalism has probably passed most of the business and infrastructure asset management world by.

It could however be highly significant in the world that emerges as, in the words of Milton Friedman (somewhat ironically as we shall see later) the actions that are taken in and after a crisis often depend on the ideas that are “lying around at the time”.

And this could be just such an idea.


The global financial crisis of 2008 was incorrectly predicted to be the ‘end of capitalism as we know it’ but as viable alternatives were neither ‘lying around’ or promoted very little actually changed. ‘Davos Man’ (surely now 'person'?) in the form of the World Economic Forum (WEF) did however quietly start to look at how the market and organisations within it could be better focused to serve society. Cynically you could say, if only for reasons of self-interest.

At the same time the ‘social contract’ also started to come under wider scrutiny as an erosion of trust in business, the media and the rise of populism as a political force took place.

Shareholder Primacy

Since the 1970's corporations around the world have embraced the principle of shareholder primacy which are that the only responsibility of business is to maximize profits for those that have invested in it.

It does however hold that some wider stakeholder interests are included where they affect the share price of the company. For instance, that a polluting chemical company will have its reputation and share price impacted negatively and thus will take these responsibilities into account.

This does also raise a significant side issue that institutions such as media, regulators and other checks-and-balances do need to be honest, knowledgeable and powerful. Those of us working with regulators will probably have first-hand experience of this.

Stakeholder Capitalism

The principle of shareholder primacy is now being challenged by the corporate business leaders themselves. The United States Business Roundtable announced last year ( see Statement on the Purpose of a Corporation) that it will adopt a stakeholder approach that focuses not just on shareholders but also on customers, employees, suppliers, and communities, all of which are deemed essential for business performance. Issues that were previously considered secondary for CEOs and boards – matters once handled by companies’ stakeholder-relations, philanthropy, and information-technology departments – have become important determinants of firms’ capacity to create and sustain economic value. For example, climate change, water management, and other aspects of environmental stewardship are increasingly recognized as bottom-line issues in a world where technology, regulation, and other features of the operating environment can change quickly.

Now we can really start to see the potential importance of this to infrastructure and asset management. Similar challenges apply to the management of intangible assets – a key source of competitive advantage in the 'forth industrial revolution'. The talent and motivation of a firm’s workforce, an innovative corporate culture, individual know-how and data, all are becoming increasingly important sources of value. This take us neatly back to asset management in the forms of BIM, IoT and Knowledge Management as well as the other ‘Support’ areas of ISO 55001 (i.e. clause 7). Elements that are also contained in all the recognised asset management models from institutes, associations and providers across the world. These transformations will also make environmental, social, governance and data stewardship (ESG&D) considerations increasingly important to companies’ financial performance and resilience. Effective administration of ESG&D performance is also important for risk management. Some companies and sectors have learned the hard way that failure to pay due attention to ESG&D issues can result in the rapid deterioration of investor, employee, customer and societal trust, potentially leading to a substantial loss of value. So what for Infrastructure & Asset Management? Those with even a passing understanding of Asset Management will see that the principles of stakeholder capitalism should chime perfectly:

  • The focus on understanding the ‘Organisational Context’ (i.e. ISO 55001, clause 4.1).

  • Identifying and dealing with multiple stakeholders, often with complex and diverging priorities.

  • Establishing objectives and making the best decisions possible with ‘least regret’.

  • Concepts of risk and value across the organisation and against all objectives.

  • Line of sight / alignment.

  • Scanning for innovation and seeking continuous improvement.

  • Integration of governance and management systems.

Indeed, these aspects can be seen to align to all the principle management systems (e.g. environment, energy, safety etc). This could be particularly helpful if you are already taking an Integrated Management Systems (IMS) approach, such as via the ISO high-level (Annex L) structure. If not then this may be the cue to start taking those management systems seriously, to be 'how we do business' instead of just 'how we stay certified'. Who is this likely to affect? Maybe nobody. If (and it’s a big if) the model is widely supported and even mandated then potential effects of stakeholder capitalism are principally for shareholder owned companies. Arguably state and semi-state asset owners should have been working like this already (i.e. considering all stakeholders in line with respective government policy). Even though there is likely to be some cultural and procedural 'read-across' from private to public sectors. Especially if supply chain organisations pick up (or are forced to pick up) on stakeholder capitalism. It is probably less clear how Asset Owners in the private PPP/PFI/P3 models will be affected but this could well be dictated by the approach of parent companies. This could be more variable and based on the uptake of stakeholder capitalism by each of these in their ‘home’ jurisdictions. Any initial thoughts from those communities as comments would be welcomed!

But how could this happen? There are probably two principle channels by which this can break through into the infrastructure and asset management sphere:

  • Individuals and corporations taking up stakeholder capitalism and having the skills and guidance to connect this with the asset management detail of existing policy, governance and strategies.

  • Bodies such as associations and institutes giving leadership in the form of education and guidance - letting people know how to make this work.

These two channels can be seen to be interconnected and are probably both required to deliver any meaningful change.

What's Next? Realising the potential of stakeholder capitalism will require companies to adopt and translate these core principles into practice. To ‘walk the talk’. That starts in the boardroom. Boards must transcend the traditional segmentation of shareholder and stakeholder considerations, exemplified by the concepts of shareholder value and corporate responsibility, by truly integrating them. Integrated corporate governance is a departure from the mindset and associated practices of shareholder primacy and corporate social responsibility, both of which treat ESG&D factors as primarily non- or pre-financial matters. By contrast, an integrative approach takes a holistic view of shareholder and stakeholder interests by systematically internalizing ESG&D considerations into the firm’s strategy, resource allocation, risk management, performance evaluation, and reporting policies and processes. In practice this will be a big change. In a hypothetical organisation this will likely first happen when a hitherto purely financial decision is altered by non-financial aspects. That’s going to ‘feel’ very different. Sounds good – but what are the issues? Firstly, stakeholder capitalism might not happen at all. It isn’t yet in any way compulsory and the cynic may well argue that the political and social pressure just isn’t present to get this ‘over the line’.

If it does there are other potential pitfalls:

  • Uptake and awareness - That people don’t get 'on the bus’ (or even know that there may in indeed be a bus at all!)

  • Superficiality - That stakeholder capitalism become just another ‘badge’ and doesn’t result on any real improvements (a less desirable chime with management systems).

  • It’s Disadvantageous - That in consulting with stakeholders the organisation actually puts itself at a competitive disadvantage by being less dynamic.

It would be great to hear from any organisations currently tracking stakeholder capitalism about their assessment of its likely effects.

Further Reading and References 1. Forum’s Davos Manifesto 2020, 2. US Business Roundtable’s revised Statement on the Purpose of a Corporation 3. The revised UK Corporate Governance Code (PDF) 4. The UK Stewardship Code 2020. (PDF)


* “Only a crisis - actual or perceived - produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.”Milton Friedman

Key Takeaways - Stakeholder Capitalism (Source: WEF)

  • Corporations should serve the interests of all their stakeholders

  • Focus is on long-term value creation, not merely enhancing shareholder value

  • Was the norm in the U.S. until Milton Friedman (told you it was ironic!) argued that corporate executives are only beholden to owners/shareholders in the 1970s

  • Supporters believe it should replace shareholder primacy

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